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Looking from the buyer’s viewpoint, it is never possible to gauge the complexities of credit card processing because everything seems so simple. Merchants accept the transaction authorized by banks but to receive the payment it takes time which used to be longer earlier but now it takes about a day or two. Yes, credit card processing might appear quite simple but looking at it from the merchant’s perspective various layers to it might seem somewhat complicated. Yes, the money transfer happens quite fast from the time of swiping the customer’s card or dipping it into the device to the time it reaches the merchant’s bank account, but the process is far from simple.

The money that reaches the merchant’s account is the result of complex data routing followed by verifications and authorizations. It needs the concerted efforts of several players like card networks, credit processing companies, and banks to complete the payment process. And during the journey, you will encounter different card processing fees that you must understand well. Aiming free credit card processing might sound good but practically not possible. You must pay the fees but can try to cancel its effects in some other ways so that it does not have any adverse impact on your profit. But first, you must know the types of fees to understand the possibilities of lowering it as much as possible.

Paying for the services

The players involved in processing credit card payments for transferring money to the merchant’s account charge for their services in the form of different kinds of fees which is a small percentage of the transaction. Since the process is complex and there are many players involved in each transaction, the credit card processing fee can be quite a sum.   Since it is not possible to avoid paying fees, the best option is to keep it as low as possible and then explore ways of mitigating its effects on the bottom line.

First, you must learn about the various pricing models for the services offered in credit card processing and how they work. It should help to identify the elements that you can target for saving the most money. You must also familiarize with various fees that credit card processing companies charge and know which fees you should not pay at all. The information should help you to gather knowledge that you can use for effective negotiation for lowering the rates and pay lesser fees.

Rates and fees – what difference does it make?

Credit card processing companies charge their customers two different sets of costs – fees and rates. Fees are the charges that you pay for maintaining the account which can be an annual payment. On the other hand, rates mean the cost that you must bear for each transaction. There are some other types of rates and fees too that you would come across like per-transaction fees and discount rates.

  • Discount rates and per transaction rates – The rate for credit card transaction consists of any of the two components – discount rate only or a combination of discount rate and per-transaction fee. The percentage of each transaction relates to discount rates, and per-transaction rates are flat fees charged for every transaction of credit card regardless of the transaction value.


  • Interchange rate – The issuing bank charges interchange rate which depends on the type of card used by customers, and it constitutes a significant portion of discount rates. The rate set by the card brands is non-negotiable, and the amount payable by the card processor remains fixed for all transactions. You can view the rate table on the website of card brands.


  • Assessment fees – It is another element of cost also non-negotiable and set by card brands, and the amount is the same for all processors. The card brand collects the rate that can vary according to brands like Visa or MasterCard. Assessment fees may also include NABU or Network Access and Brand Usage for MasterCard and Visa’s APF or Network Acquiring Processing Fee. For Discover, it is Data Usage Fee.


  • Processor’s markup – The fees which are a part of the discount rate is set by the card processing company and open to negotiations.

Credit card pricing models

Credit card processing companies follow three pricing models for calculating transaction rates and offer anyone to their customers. You may have to pay a flat rate, interchange plus rate or tiered pricing.

Flat rate pricing – This pricing model is popular among mobile credit card processors but not offered by traditional credit card processors. Regardless of the type of card, the processors charge a flat rate for every transaction. It means that a reward credit card which is a premium credit card has a small markup as compared to regular debit cards with a higher markup. For low monthly sales volume or if average sales comprise of small tickets, this pricing model should work well.

Flat rate with per-transaction fee pricing – This is a variation of the flat rate model that combines with per-transaction fees, and the flat percentage rate is usually lower. Weigh the options to figure out which should be more cost effective for your business.

Interchange plus pricing – If you hear about cost-plus pricing you should know that it is the same interchange plus pricing. For each transaction, there is a fixed percentage markup above the interchange rate. The markup goes to the processor. By looking at the pricing model, you can understand what percentage of your costs goes to the processor regardless of the type of card used and the number of transactions undertaken. This is the most cost-effective pricing model.

Tiered pricing – In this pricing model, the credit card processor creates price buckets based on the interchange rates and assigns a price for each bucket. Processors create separate tiers for credit cards and debit cards and can have between two to six tiers, but most commonly you would see three tiers for credit and debit cards.

Only credit card processors are open to negotiations but only with selected few whose business appears attractive to them.